skip to main |
skip to sidebar
Gold touched $798.30 on Monday but closed at $792.60, practically unchanged from its gap-up opening price. The resulting doji candlestick signified indecision in the marketplace, or a balance of strength between buyers and sellers that is often a prelude to a change of trend. Gold then fell $4.80 on Tuesday after recovering $5.60 from its low of the day. RSI remains above 70, and MACD is still rising above its rising 9-day MA, so we may need to wait for the response to the U.S. Federal Reserve's decision on interest rates Wednesday for a clear indication of future direction.
On the weekly chart, RSI is overbought but has room to go higher. MACD, however, is looking somewhat extended above its 9-week MA. A consolidation near the round-number resistance of $800 is likely before gold resumes its climb.
GDX is in danger of having put in a double top on Monday, its close of $49.84 being just 10 cents above the intraday high of $49.74 exactly two weeks before. On Tuesday GDX closed at $48.82, down just over a dollar. RSI has been repelled at 70%, and MACD lies just above its 9-day MA. Unless GDX closes above $50 soon, it may form a trading range between its recent highs and support at $46.
The U.S. dollar index has fallen six days in a row, the longest such run since early September. A small bounce could begin within a day or two, in line with a possible consolidation in gold.
Silver broke sharply out of its five-week trading range Friday, closing at $14.28, up 2.7%. RSI has broken its downtrend, and MACD is in the process of breaking its own.
The metal appears to have enough momentum to resume its uptrend with a vengeance and may test last February's high of $14.89 within weeks, possibly before the end of the year.
Silver's leap managed to eclipse gold's jump to $787.50 Friday — a mere 2.14%. Gold's RSI and MACD have also broken their uptrend lines, clearing the way for gold to continue its climb.
Will silver now begin to pull ahead relatively to gold? And will that be a good omen for the longevity of the gold bull?
During the rally since mid-August, silver has on the whole kept pace with gold, though it has underperformed the yellow metal recently. This may change, as RSI for the $SILVER:$GOLD ratio has risen above 50, and MACD appears to be ready to make a bullish crossover.
The implications are mixed. Although if silver begins to outperform gold it will be a cause of cheer for those who believe that is the normal state of affairs during a precious-metal bull, Adam Hamilton's research shows that is a myth. He points out that silver tends to lag gold in the early stages of a bull move and only outperforms it in the final, most speculative stages of the ascent.
This observation can be seen to be borne out by an examination of the rallies that ended in spring 2004 and spring 2006. Silver at first lagged, then overtook gold only in the latter part of each rally to make a significantly higher peak, in percentage terms, at the very end.
In any case, silver has a bright future over the next several years, according to analysts at RBC Capital Markets cited here. They argue that three fundamental factors will support the price:
First, the continued baseline outlook for a weaker US dollar, which would underpin higher precious metals prices in general. Second, fundamentals for silver are seen as remaining positive, with demand increases for industrial and investment segments forecast to more than offset continuing decline in photographic demand. Third, concerns over increased primary silver supply is seen as remaining a few years out, as remain analysts' expectations for increased by-product silver supply resulting from high price levels seen in gold, copper, lead and zinc.
Gold's uptrend line provided support again on Wednesday, and the yellow metal rose for the third day in a row on Thursday. Although the price has yet to surpass last week's high of $776.90, momentum as measured by RSI has turned upward and looks set to break its downtrend line near the 70 mark, so $780 should be well within the sights of gold.
Silver showed new strength on Thursday, popping above resistance at $14 briefly and closing just below it at $13.90, up 2.3% for the day, while gold only managed to rise 0.71%. Silver's RSI is also poised to break above its downtrend line, so a breakout by silver from its trading range looks imminent.
While GDX has also been rising, its RSI and MACD remain in more neutral territory, indicating that it may have work to do before tackling last week's high of $49.74.
The U.S. dollar continued its decline on Wednesday and Thursday, and MACD is making a second bearish crossover in quick succession. Further weakness in the dollar is indicated, and the gold price should benefit.
Gold fell sharply intraday on Monday but found support at the uptrend line near $750 and closed down $8.40 at $760 — comfortably above support around $756 near the previous peak. On Tuesday gold recovered part of its losses, closing up $3.10.
RSI and MACD are both showing bearish divergences to the price, and MACD has made a second bearish crossover. Should the uptrend line be broken, next support would likely be around $730 again, and then at the rising 50-day MA, which is currently approaching $720.
Silver appears trapped for the moment in a trading range between about $13.31 and $14. RSI and MACD are also showing bearish divergences to the price.
On Monday, GDX fell back into its recent trading range but managed to pull itself out of it on Tuesday. However, RSI and MACD are both showing bearish divergences to price, although RSI is no longer indicating that GDX is overbought. MACD has made a second bearish crossover.
If support at the top of the trading range fails to hold, next support is at the bottom of the range, near $43. The rising 50-day MA is approaching that mark and could serve to reinforce the support there.
The U.S. dollar index rose sharply on Monday but gave up about half its gains on Tuesday to close at 77.57, just below the previous low of 77.66 made on Oct. 1. RSI is no longer oversold, and MACD is hugging its 9-day MA, so neither indicator is giving a clear signal of the dollar's next move.
Should the dollar bounce again, resistance is not far overhead at the broken trendline. This line has been redrawn to take into account more candlestick tails. $USD is now seen to have kissed it on the pullback earlier this month before resuming its decline.
In the midst of the hysteria surrounding the plunge in the stock markets Friday, not too many investors may have noticed that the U.S. dollar closed at an all-time low for the second day in a row. The significance of this fact to gold is, as Wendy Ip explains,
The correlation between the US dollar price of gold and the Broad Dollar Index [a measure similar to $USD, the U.S. dollar index] is -0.9075 between the years 2002 to 2007. That is, a rise in the US dollar price of gold is reliably coupled with a fall in the value of the dollar.
This correlation is quite clearly visible, especially since early 2006, in the bottom panel of the weekly chart, which shows the ratio of the gold price to the inverse of the U.S. dollar index.
The relationship continued to hold last week, as gold rose by $14.60, 0r 1.94%, while the U.S. dollar index fell by 0.80, or 1.02%.
On the daily chart, the gold price has mirrored the fall in the dollar particularly closely since the beginning of September. The dollar index looks ready to continue its decline as MACD makes a bearish crossover and RSI threatens to fall below 30.
Interestingly, a (somewhat looser) correlation can also be seen between the recovery of the S&P 500 index since its mid-August bottom and the rise in the price of GDX, the gold-mining ETF, over the same period. This relationship, however, appears to have broken down on Friday, when SPX fell 2.56% and GDX declined 1.27%, almost exactly half as much. As a result, the GDX:$SPX ratio actually rose 1.33%. (Gold itself fell just 30 cents, or 0.04%.)
If GDX manages to show relative strength in the face of declines in the broader stock market, the ETF could increase its appeal to investors looking for a safe haven.
However, even as gold looks relatively healthy — and Ambrose Evans-Pritchard reports that fresh Japanese buying came into play when the gold price broke the psychological barrier of 3,000 yen per gram — GDX appears to be losing momentum relative to gold.
MACD has made a bearish crossover, and both RSI and MACD are showing negative divergences to the GDX:$GOLD ratio. This ratio needs to be watched closely, since, as can be seen in the bottom panel, while GDX has moved in close tandem with gold since the beginning of September, it has led the gold price in the past.
Despite the rhetoric about a "strong-dollar policy," the powers that be in the United States seem to be resigned to the dollar's ongoing decline, if they are not in fact actively promoting it. Martin Feldstein, the well-connected Harvard professor and former chairman of the U.S. Council of Economic Advisers, filled an article in the Financial Times last Sunday with arguments as to why "A competitive dollar is good for America":
The dollar has finally begun its long overdue correction. The dollar’s decline in recent weeks is just a prelude to the much more substantial fall needed to shrink the US current account deficit, running at a nearly $800bn annual rate, about 6 per cent of gross domestic product.
Gold fell intraday on Wednesday and found support at $756.40, near the previous high of $755.70. It touched a new intraday high of $774.90 Thursday before closing up $6.40 at $768.70. RSI has broken above 70, and MACD has made a bullish crossover at last.
On the weekly chart, too, RSI has risen above 70, a sign of strength. MACD histogram continues to rise.
GDX, too, made a backtest of its breakout from the recent trading range, finding support on Wednesday at $45.98, near the top of that range and just 2 cents above the previous high. The gold-mining ETF rose $0.94 on Thursday to close at $47.40. RSI and MACD are bouncing off their broken downtrend lines but have yet to make new highs despite the new high in price.
The U.S. dollar index broke down from its narrow trading range to close at 77.58, a new all-time low. RSI threatens to fall below 30, a sign of weakness, and MACD seems to be headed for a bearish crossover.
Gold touched $772 Tuesday before closing $10 lower at $762, down 20 cents for the day. On the daily chart it left a doji with a long uptail, a candlestick resembling a shooting star, which is potentially bearish unless cancelled by a move higher the next day. RSI stopped just below 70, and MACD is right at its moving average.
The weekly chart, however, remains healthy, with a short-term Fibonacci target near $780 and an intermediate-term target around $860.
Silver again failed to close above resistance at $14 and has fallen to $13.66, near the middle of its trading range. Both RSI and MACD have made lower highs, suggesting that the metal has work to do.
The $SILVER:$GOLD ratio is looking weak, with RSI falling below 50 and MACD making a bearish crossover.
GDX fell $0.73 Tuesday, completing a bearish candlestick formation known as an evening star, and RSI has been repelled at 70. Support for GDX may be expected around $46, the top of the recent trading range.
Perhaps ominously for gold, the GDX:$GOLD ratio has turned down three times at resistance provided by its broken uptrend line.
Gold's weakness is accompanying strength in the U.S. dollar index, which is flattening out after a brief decline. RSI, MACD and MACD histogram are all rising, which suggests the dollar could recover further.
GDX rose $0.99 Friday, confirming its breakout from the three-week trading range between $45.96 and the Fibonacci 23.6% retracement level near $42.84 by posting three daily closes above that range. In the process, it negated the potential shooting star of the day before. RSI has broken its downtrend line, and MACD has made a bullish crossover.
The way is now clear for the gold-mining ETF to resume its meteoric rise. As a very rough guide, Fibonacci extensions suggest a short-term target of about $49 and an intermediate-term target near $59.
Traditionally the mining stocks have led gold, so the fact that the GDX:$GOLD ratio is rising is constructive for the price of the metal.
Intriguingly, gold fell $2.90 Friday, closing below Oct. 1's high of $755.70, so Thursday's brief breakout has been negated for now. RSI has been turned back again at 70, and MACD has yet to make a bullish crossover.
Silver, too, has failed to break out of its trading range, between resistance at the Sept. 28 high of $14 and support near the Fibonacci 23.6% retracement level of about $13.31. RSI didn't make it to 70, nor has MACD succeeded in making a bullish crossover.
The U.S. dollar halted its three-day decline on Friday, as the index rose by 0.05 of a point in inverse action to gold.
This week's action should be interesting, as it is unlikely the gold and silver stocks will continue to surge without the metals following closely behind.
In fundamental news, the price of gold could be supported by the prospect of a near-term tightening of supply: The National Union of Mineworkers in South Africa has confirmed plans to strike at the end of the month over concerns about safety in the wake of fatal accidents in the mines of the country that is still the world's No.1 producer of gold.
What correction? After seven days of consolidation, gold jumped $10.70 Thursday to close at $756.70, just one dollar above its previous all-time high of $755.70, set on Oct. 1. Intraday, the metal had been up as much as $13.30.
The narrow margin by which the price made a new high requires that we see evidence of follow-through before concluding that we are off to the races. MACD has yet to make a bullish crossover, nor has RSI broken the 70 ceiling.
So far, gold hasn't retraced as much as 38% (a common Fibonacci fraction) of its dramatic rise since mid-August. In the face of strong, sustained buying pressure, pullbacks do occasionally reverse at the less common 23.6% retracement mark, in this case about $731. Strong support did, indeed emerge around $730, which, not coincidentally, is the level of May 2006's important high.
On the weekly chart, RSI is still hovering around 70, while the MACD histogram continues to rise.
GDX heralded the bullish action in gold by breaking out of its three-week trading range Wednesday. However, Thursday's action in the gold-mining ETF was hardly bullish. GDX gapped up and soared all the way to $48.51 before plummeting to close at $46.80, up just 12 cents on volume that was the highest since Aug. 16.
In the process, it left an ugly candlestick on the daily chart similar to what is known as a "shooting star," a narrow body with a long uptail. This formation is very bearish if confirmed by a decline the next day.
GDX's consolidation also found support near the 23.6% Fibonacci retracement, in this case around $42.84.
GDX has now made a marginal new high, 35 cents above May 2006's all-time high of $46.45.
Meanwhile, the U.S. dollar index has fallen three days in a row, but not yet to a new low. Its recent bounce was turned back near the level of the 23.6% retracement of its decline from the August high of 82.13. As noted on Tuesday, such a shallow retracement, if it stands, would be a sign of profound weakness, the counterpart to the robust strength in gold.
It has been a choppy consolidation so far for gold, with intraday weakness being met by willing buyers. Gold is still a significant distance above its 50-day MA, and MACD continues to fall, so this correction may have some way to go.
This reading is reinforced by the weekly chart, where RSI has just been repelled at the 70 level, and the MACD histogram has begun to turn down.
GDX has been showing some strength, with the top of the long-term channel providing effective support so far.
A look at the daily chart shows that GDX has been trading in a tight range between about $43.50 and $46. A breakout from that range may be imminent. So far, RSI and MACD have been showing a bearish divergence from the price.
The U.S. dollar index has, as usual, been moving inversely to gold, correcting choppily upward. It could bounce to the Fibonacci 38% retracement point near 79.4 or make a 50% retracement to the 50-day MA near the former long-term support around 80.
It would be a sign of exceptional weakness if $USD failed to reach the bottom of the falling wedge at around 79 before resuming its secular downtrend.
Gold closed a volatile week nearly unchanged, forming a bearish "hanging man" candlestick on the weekly chart.
RSI and MACD on the daily chart indicate that the yellow metal is still overbought in the short term. It is likely to require several more days of consolidation before resuming its uptrend.
Steve Saville notes that the commercials (large holders of positions in the physical commodity — which figures in the course of their business, such as mining or jewelry-making) are net short the metal, and that their net-short position is at record levels. He points out that the last time the commercials' net-short position peaked near these levels, exactly two years ago in early October 2005, gold fell 5% and the HUI index of unhedged gold-mining stocks fell 14% in less than four weeks.
Troy Schwensen, however, cautions against misreading the implications of extremes in the commercials' net-short position, pointing out that the commercials were heavily net short during gold's massive rally in 2005-2006. That period includes the brief correction mentioned by Saville.
So if the commercials' net position by itself doesn't provide a definitive indication of gold's future direction, where else can we look for clues?
Adam Hamilton again rides to the rescue, pointing out that gold has shown pronounced seasonality during its current bull market. He found that the price of gold will surge during an average September, then correct sharply into mid-October. The ensuing rally will be the strongest of the year and, on average, will last until the following February.
Of course, seasonality can only be a guide to price tendencies at a given time of year and should not be relied upon by itself in making trading decisions. But the annual pattern unearthed as a result of Hamilton's research has played out quite accurately over the past several weeks.
Gold touched $798.30 on Monday but closed at $792.60, practically unchanged from its gap-up opening price. The resulting doji candlestick signified indecision in the marketplace, or a balance of strength between buyers and sellers that is often a prelude to a change of trend. Gold then fell $4.80 on Tuesday after recovering $5.60 from its low of the day. RSI remains above 70, and MACD is still rising above its rising 9-day MA, so we may need to wait for the response to the U.S. Federal Reserve's decision on interest rates Wednesday for a clear indication of future direction.
On the weekly chart, RSI is overbought but has room to go higher. MACD, however, is looking somewhat extended above its 9-week MA. A consolidation near the round-number resistance of $800 is likely before gold resumes its climb.
GDX is in danger of having put in a double top on Monday, its close of $49.84 being just 10 cents above the intraday high of $49.74 exactly two weeks before. On Tuesday GDX closed at $48.82, down just over a dollar. RSI has been repelled at 70%, and MACD lies just above its 9-day MA. Unless GDX closes above $50 soon, it may form a trading range between its recent highs and support at $46.
The U.S. dollar index has fallen six days in a row, the longest such run since early September. A small bounce could begin within a day or two, in line with a possible consolidation in gold.
